What’s OPEC Up To?

Just about a year ago it was announced that OPEC decided not to cut production thereby created an artificial glut in the supply of oil worldwide.  One might wonder what are they up to as it doesn’t make any economic sense; at least at first glance.

Earlier this year I had written two articles for this publication concerning this subject.  They are:


In these articles I specify what I think OPEC is up to and had mentioned in the part 2 edition that the number of oil well in the United States is shrinking.  Bottom line, we believe OPEC is waging a war of attrition with domestic producers of crude.  They know all too well that North America doesn’t necessarily need them or their crude.  OPEC on the other hand wants to close as many oil wells as they can in North America and as such reign supreme over the crude markets.  There are many reasons why this is happening:

  • Shale oil production has increased. Admittedly this is the dirtiest type of oil but it will increase domestic supply.
  • Electric powered vehicles and tools. Besides autos there are now more lithium powered tools and devices that run far longer on a single charge as opposed to traditional batteries.  Case-in-point this past year I purchased a battery powered lawn mower that requires no gasoline, no oil, no carburetor and has no moving parts.  I now understand that I can purchase a lithium powered snow blower.

In the second article we state that according to Forbes the active oil rig count is down to 635 as of June, 2015.  A recent article by Marketwatch now states that the number is down to 578 and dropping.  You can view the article HERE.

This has now become part of the political landscape as recently as the last Republican Debate on CNBC; Ohio Governor John Kasich stated that the audience should vote for a man that has the “experience and know-how to get the job done” in terms of creating revenue, increasing employment, etc.  GOP contender Donald Trump stated “Ohio got lucky in terms of fracking”.  There is some measure of truth to this as Ohio currently holds the title as the number 1 polluted state in the US.  Don’t believe me?  Check it out HERE yourself.

So the question remains what is OPEC up to?

Give all the evidence I think it’s pretty clear that OPEC wants to undermine the use of shale oil and domestic producers.  They had the opportunity a year ago to reduce crude output and thereby create an artificial shortage to increase the price of crude per barrel.

They elected not to do this, why?  Because they’re so generous?  We don’t think so.  They are waging a war of attrition whereby they will close as many North American oil wells as possible and drive as many producers out of business and when they think the playing field is level, they’ll cut production thereby driving the price of crude higher.

They know all too well that the US government won’t protect the rights of oil producers and they know all too well that once producers have gone thru the trials of boom and bust, they won’t touch it again.  If you need proof of this look at what’s happened in North Dakota.  A

couple of years ago North Dakota was the mecca for those seeking employment and was a “model” for US employment.  That has all changed now.  Thus far all of this has been warmly received by the US consumer who like and want lower oil prices.  However they should understand that this too may change…

About the Author
Nick Mastrandrea is the author of Market Tea Leaves, a daily newsletter that is dedicated to your trading success. We teach and discuss market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com. Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to all subscribers. [space height="20"] [social type="twitter"]https://twitter.com/MarketTeaLeaves[/social] [social type="google-plus"]https://plus.google.com/u/0/100398191873287497330/posts[/social] [social type="youtube"]https://www.youtube.com/user/MarketTeaLeaves[/social]

Related Posts

Leave a Reply